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Success within the CRO sector.
Flame Pharma are seeing growth and success within the CRO sector. The below article also highlights this growing trend.
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Why Contract Research Organizations Are So Hot – Forbes.com 10.04.11
With more drugmakers outsourcing more trials to contract research organizations, few should be surprised that the CRO sector is generating investor interest.
The attention-grabbing deal announced this week in which two private equity firms – Carlyle Group and Hellman & Friedman – agreed to pay $3.9 billion in cash to buy Pharmaceutical Product Development is no random bet.
Might there more be more such acquisitions? Clearly, CROs are on the radar screen. Why? For one thing, prices are rising. A survey by RW Baird analyst Eric Coldwell found 42 % of drug makers say prices rose in this year’s second quarter, up from one-third in the first quarter. The backdrop is a projected 3.6 % to 8 % growth in R&D budgets, on average, among drugmakers and biotech’s.
Large and mid-sized drug makers reported fewer price decreases, while small firms, which include biotech’s, reported more price decreases in the his most recent survey. However, the magnitude of price decreases was flat to lower across the board. “The vast majority of internal Pharma staff surveyed believe that they are spending the same, or more, per unit of outsourced work today than in the recent past,” Coldwell writes in an investor note.
Meanwhile, the 388 drug makers and biotech’s that were surveyed also reported that that CRO clients expect a 9% increase in the R&D budget that is outsourced, with total market penetration by CROs increasing from 35% last year to 38% in 2011. Among large drug makers, 27% expect to outsource, while 47% of the smallest companies expect to do likewise.
"Looking ahead several years, we have generally concluded that client R&D budgets will be flattish in total, yet the CRO industry secular market move to higher involvement will continue as clients replace less efficient internal functions with more efficient and cost effective external solutions," Coldwell opines.
Separately, the Association of Contract Research Organizations conducted a survey of its own members and examined 11,508 trials carried out by ACRO members and found that each CRO was involved, on average, in more than 750 studies. By comparison, ACRO says that about nine of its members worked on roughly 400 trials in 2008. They also contributed to 33 of 38 drugs approved in the US and Europe last year.
Not surprisingly, the CROs were busy with oncology trials – 961, or 19%, of 4,964 compounds studied last year were novel cancer meds. Three years ago, oncology amounted to 18% of the activity. And overall revenue for ACRO members rose 156% since the association was founded in 2001, a compound annualized rate of 11%.
As Coldwell sees it, the "ultimate end game" has outsourcing penetration in the pharmaceutical industry reaching between 60% and 80% in the distant future. "At a time when many people are asking 'where are the jobs?,' we have a clear answer," says ACRO executive director Doug Peddicord. With all that growth, CROs are likely to continue to appear attractive. And going private offers an added bonus – a chance to escape the microscopic scrutiny that is regularly applied to publicly traded companies
Ed Silverman, Contributor
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